DBJJJ, INC. v. National City Bank

A documentary letter of credit is a method of payment whereby the promise of a stable financial source, usually a bank, is substituted for the promise of a credit applicant, usually a purchaser of goods. (Paramount Export Co. v. Asia Trust Bank, Ltd. (1987) 193 Cal.App.3d 1474 [ 238 Cal.Rptr. 920 ].) At least three separate, independent transactions underlie the letter of credit: (1) the undertaking from the issuer of the letter of credit to the beneficiary; (2) the agreement between the issuer and the credit applicant; and (3) the underlying contract between the applicant and the beneficiary. (San Diego Gas & Electric Co. v. Bank Leumi (1996) 42 Cal.App.4th 928, 933 [ 50 Cal.Rptr.2d 20 ]; Paramount Export Co. v. Asia Trust Bank, Ltd., supra, 193 Cal.App.3d at p. 1480 .)

In this case, the triangular relationships included (1) an agreement for the sale of clothing between appellant, DBJJJ, Inc. (Seller), a garment manufacturer, and Pennsylvania Fashions, Inc. (Buyer); (2) an agreement between Buyer and respondent, National City Bank (Bank) regarding the issuance of two letters of credit; and (3) two letters of credit issued by Bank, naming Seller as the beneficiary. Both…